NCNN ep5: How Demographics Shape Alcohol Consumption: In Conversation With Laurence Whyatt

Any sector that wants to stay relevant must invest in the future consumers and fine wine is no exception. But everywhere you look now, people are re-evaluating their relationship and attachment to alcohol, wine and food and redefining our current understanding of luxury, lifestyle and success. What does this all mean for us as an industry and as individual brands? How can the fine wine sector engage with new generation of consumers in a meaningful way in such a changing environment? At Aruniglobo we believe that complex questions require in-depth research. I am Pauline Vicar, the co-founder and executive director of Aruniglobo, and in this new podcast series, new consumers, new narratives, I meet marketing industry legends, speak with academics and researchers and push the doors of private member clubs. Come with me as we discuss the best possible ways for our industry to invest in its future. Today I have the pleasure to host Laurence Wyatt. Based in London, Laurence is head of European beverages research for Barclay's investment bank, meaning that his job is to predict the future of alcohol consumption globally so companies can invest accordingly. Drawing from his latest multi-year analysis, so how demographics and economics shape the global alcohol consumption, we answer some of the world of wines burning questions on Gen Z, the role of women in premiumisation, all the impact of cannabis and ozempake on alcohol sales. And if you want to know which markets represent the biggest opportunities for premium wine companies moving forward, and why, well stay tuned until the very end of the episode. Without further ado, let's dive in. Well, Laurence, thank you so much for being with me today. I'm very excited by the conversation that we are going to have and to start. Very, very classic question. Can you tell us a bit about you and about your role in what you do and into which purpose? Sure, Pauline. Thanks very much for having me on. So yeah, I'm Laurence Wyatt. I run European beverages research here for Barclay's investment bank, which really looks at the listed traded companies in the alcohol sector. So that's companies like Avian Bev, who make Budweiser, Celaratoa, these sorts of beers, Heineken, Karlsburg, and then the Spirits companies like Diagio, the future Scotch Portfolio amongst other brands, Pinerikas, Remi Quantro, Campari, as well as some of the smaller companies like CNC Group, who make tenants larger up in Scotland and have a big distribution business in the UK, as well as some soft drinks like Coca-Cola, Hellenic, Coup bottle, Coca-Cola products throughout Eastern Europe and in a few other countries. So my role is to look at those companies and really try and predict their share prices. It's an investment style role. But of course, in order to do that, we need to understand the industries as well as we can and try and predict how alcohol consumption is going to change in the future. And I can be over the very short term next few weeks and months, and it can be over the long term over the next sort of years, decades even. And my clients are largely the large investment companies who are taking positions in these companies. Their time frames can also be those long term or short term time frames. So we try and predict the share prices for those clients. And so they can hopefully make good investments. So just to make it very clear, you're studying the alcohol company, but then not your clients. Your clients are the different investment companies that run portfolio and decide to invest in alcohol company as part of their investment portfolio. Exactly that. Yeah. So I will talk to the drinks companies, of course. So we talk to them on a regular basis. And even some of the private companies I'll have discussions with as they're interested in how investors are looking at the sector. Sometimes companies are looking to IPO and take their company public. And sometimes the private companies are just simply thinking what are investors looking at to best manage their businesses. So yeah, of course the conversations do happen with the companies, but yeah, they're not my clients precisely. So one question that I had for you is that a few years back, I remember one of the first year we had this thing, I get it renees, you must have been 2018 or 2019. We had seen that movement of company de-investing in alcohol. So you know, they were starting to treat alcohol the same way as tobacco or the adult movie industry or weapon and guns. And I was wondering if that's still the case. Like is alcohol considered like a, you know, a non ethical investment? Always at changing. Yeah, it's a really good question, putting. And I think your timeframe is spot on because it was around that sort of time that alcohol started to be thought about in that way. The time was a rise of sort of ESG style investing. And I, so I work in a larger team. So I cover drinks, I cover beverages, but of course I sit next to the person who covers food. I sit next to the person who covers home and personal care, but I also sit next to the person who covers tobacco. And so we see this in real time. And that tobacco industry has obviously gone through this process where it's been sort of excluded from funds for ethical reasons. And it started to happen with drinks around that time. But I would say it was a far smaller proportion of investors that were reducing it. There was a couple of geographies, particularly Scandinavia, particularly France actually, where investors reduced their focus on the alcohol sector. But then we've gone through the pandemic period. And we've also gone through a period where these companies are increasing their focus on either soft drinks or on the non-alcoholic space. Particularly things like Hainikens Zero have been very permanent, but prevalent in Hainikens portfolio. And that's becoming a more important part of the growth of the market. So firstly, using very simplistic views of whether something is ethical or not have evolved over the past five, ten years. And we've seen throughout the pandemic, and even you could argue during prohibition in the 1920s in the USA, if you're saying that a sector is uninvestable, you're effectively saying that you don't think that these companies should exist. And we know what happens when these companies are not allowed to exist. So this is prohibition in the 1920s. But also there's a few countries that ban the sale of alcohol during the pandemic. And what happens during these periods is the money simply goes underground. The product is still available, but it's often illegal organizations that will manage the sale. It goes to the mafia, it goes to underground organizations. And that's in no one's best interest. The government doesn't raise taxation through these products. The products themselves can become a lot more dangerous, given that distillation can be a, if you get distillation wrong, you can make quite harmful products. By going away from the regulated industry, you're not doing the best for your citizens. So I think that that movement to try and say alcohol is, by definition, a bad sector, an unethical sector, we've really moved on and we've actually seen investors move back into the alcohol sector. And of course things like the Russia-Ukraine War have brought a question to what is ethical. Like you say, the weapons industry was very much in that unethical group. But of course, as we saw in that conflict in particular, the companies that were providing weapons to defend Ukraine were suddenly seen in a much more ethical light. And so this sort of movement has simply exclude companies, I think, has moved on in the past few years. Yeah, and so it's a bit like, we know that alcohol consumption is not going away, so we might as well invest in the company that do it properly. When we prepare together, you also mentioned, and that really stuck with me, that it was also because the alcohol company in recent years have made an effort into working into the moderation and promoting healthier model of alcohol consumption. Is that true? Can you confirm? Yeah, absolutely, that's true. So firstly, this is the rise of non-alcoholic products. And this has been particularly important in the beer industry. Like I say, Heineken Zero has been a great success behind it, but all the beer companies have done on alcoholic portfolios, which do a number of things. So firstly, they add volume growth. I mean, if you're selling out non-alcoholic beer, it's just another thing that you can sell. And the margins on these products are pretty healthy. Of course, there's much less taxation on them, given they don't have any alcohol in them. So very profitable. But also it enables them to market in areas that do advertise in areas that perhaps wouldn't be as easy in an alcoholic sector. And I think the best example of this is the Formula One races, which is a key advertising space for Heineken and Heineken Zero. Of course, if you're pushing a don't drink drive message, what better place to do that than in Formula One, and using the Heineken Zero brand to do that. And I think that also gives these companies a bit more more about a seat at the table. with governments because historically governments would like people to drink less alcohol, as you say it's typically not very good for you to drink alcohol and particularly drinking it to excess. But now the companies can say look we have a product that's part of the solution to this, we're giving people an opportunity when they go to the pub, when they're going to parties to have a non-alcoholic product, we're making it, we're promoting it, and so that's certainly helping this side of things. But also the companies themselves have also been pushing towards a more premiumising strategy when you sell higher end products. You're drinking less but drink better. Exactly that, yeah. If you drink more premium products they typically make more money for the companies, the margins are typically higher. So it's in everyone's interest to promote that, drink less but drink better mentality. So I'm talking about wine but if I understand correctly because you are working and you are studying publicly listed companies, I suppose wine is not your core, the core alcohol that you study right, because there's not that many publicly traded companies out there, it's more spirit and beer, am I correct or? Yeah that's exactly right, of course we need to understand what's happening with wine as well because we see the world in a total beverage alcohol perspective. If you're drinking less wine you might be drinking more beer or more spirit and vice versa. So we see and customers, consumers are seeing the industry far more interchangeably now and especially with the rise of what has been turned beyond beer. These sort of not quite beer products, and this is things like hard selltests or flavour more beverages or canned cocktails, these sorts of things. The lines between all these categories are blurring, we saw wine in the can and continue to see wine in the can, we're seeing wine in boxes more in a more premium way as well. So the lines between the categories are blurring so we need to understand how consumers are interacting with alcohol but of course also some of these companies have wine assets. I mean just recently Pernier-Eckard sold a large majority of their wine portfolio but they still have a lot of or some champagne exposure. Remy Kwon-Trouh has champagne exposure, Diagio has some wine exposure as well and has a minority stake in Melahennessey which has some of the biggest champagne brands and some of the wine brands as well. So there is some overlap but I think you're right in saying that my core focus is mainly spirits and beer. Okay so these loads of questions that I want to ask you but I think for the purpose of context I wanted to ask you the state of global alcohol consumption today, which countries currently have the highest so what you call TBA which is total beverages alcohol per capita? Because in wine we know the wine, we know the wine volume consumed in the much market but I don't know for alcohol if that's much difference if that would make a lot of difference or alcohol included. Yeah sure so when you look at TBA per capita so what we've done is try and look at the quantum of beer, we multiply that by 4% for the alcohol, quantity of wine, multiply that by 12 and a half percent and the quantiose spirits multiply that by 40%. And using that you can try and estimate the amount of alcohol that's consumed any country and then divide it by the number of people over the age of about 15 and you can try to determine how much alcohol each of these people drink. 8.53 you were saying? Yeah so we use that it's an industry method of course this is you can anyone can do what they want but that's the sort of level you don't get much consumption of people under the age of 15, of course different countries have different legal drinking ages, most countries is about 18 but that's just a purchase alcohol of course you can drink the alcohol at a younger age legally and then it's certainly the US is 21 but the biggest per capita consumption are in some parts of Eastern Europe where you can get to up to around 12 litres per capita they're typically beer consumption in that part of the world. Amongst the western world you get actually France is pretty high up there on 10 and a half litres much of Western Europe is in that sort of 8 to 10 litres. The US is extremely important market is around 8 litres and then it sort of decreases as you go through the more emerging markets places like Argentina, South Africa we're in that sort of 5, 6 litres Brazil, Mexico are there as well and then some of the Asian countries like China's only around 3 litres despite it being the biggest alcohol consuming countries in the world simply by nature of having a very large population and then as you go further it further down you get some of the African markets, some of that sort of emerging Islamic markets as well there typically be around sort of 1, 2 litres per person and below. Okay, has it been moving a lot over the recent years? Has it been stable since you've been studying it? Yes so it's typically the western countries have been declining and the sort of emerging markets have been generally growing so it is a bit of an issue that the industry has to grapple with that's particularly Western Europe is seeing declining pick-up to consumption and we've put this down to demographic factors and that's the sort of main reason we're putting forward as to why that's happening and demographic factors being the fact that the young people in these countries are declining in number. The birth rate has been falling in a number of these places over the past few decades and you really need a healthy young population in order to have high alcohol consumption. The alcohol consumption is skewed towards the young. But there's a few exceptions to that. So for example the US has seen a fairly healthy growth in alcohol consumption for the past three decades. There's been a very recent fall in that and there's been a lot of debate as to what the reasons are for that but the US has typically been one of the healthier alcohol growth markets and we believe that's going to continue despite this recent slowdown and then the other major market that's seen quite a bit of change is China. China's alcohol consumption is actually half the pick-up to since 2015. It materially is in spirits and it's spirits consumption in China is half since 2016 and bear consumption is down around 20% since 2013. So that's a major change but then on the flip side someone like India is seeing quite healthy growth in pick-up to consumption again with a very large population. It's important for spirits consumption in particular. It's a major market for Scotch whiskey for example. Yeah, typically they're the changes that we're grappling with. Okay and within those markets do we see a lot of change between the you know in the balances of a alcohol that's consumed because I would assume country like France has a high consumption of wine compared to you know a country like India or even even the US but does it does it really change like is there a category of drinks that is globally rising? I'm thinking of spirits in particular because that's that's the first other category that we turn to in wine when we look at our numbers and like who's taking shares from us and it's using spirits in the at least in the premium category. Sure, so the way we sort of understand spirits as a premium form of alcohol consumption. And that's it's not as simple as that as of course the way we think about it is if you go and buy a cocktail in a bar you're typically spending more than a pint of beer and therefore you typically see as countries get wealthier the amount of spirits consumed in those countries tends to go up that's not always true because of course if your aim is to simply drink the most units of alcohol the cheapest way of doing that is typically also buying spirits and so you do see a few countries and again China and India are very much in this basket where relatively low GDP per capita yet spirits is the main form of alcohol consumption. But if we look at the big markets that we focus on and so that would really be the US China and India. The US is seeing quite a big skew towards spirits and that's been happening for the last few decades with spirits growth has historically been around sort of 4-5% big growth at around 1% this is sort of value numbers and wine's been a little bit higher than beer but not much in China though we're seeing a bit more of a focus towards beer and that's partially because it's coming from a much smaller base and it's a bit more of a premium form of consumption than the sort of basic baiju that the majority of Chinese alcohol consumption has been historically and similarly with India India is a massive spirits market it's a whiskey market and the growth of beer has exceeded the growth of spirits in that market as well. Within Europe it is sort of varies by country and that's an America beer has typically been taking share but it's a relatively small form of alcohol consumption there. But yeah in the big markets I would say the US is the most important for spirits growth. As you've already mentioned and we're going to go deeper in it a bit later in the interview but there's been a drop of consumption in some markets like China. in the US that has been concerning and there's been a lot of press title about young people stopping to drink, not drinking anymore and of course not drinking wine anymore which is even more concerning for us. But before we go deep into what's happening now, I wanted to ask you if if that's part of a cycle like hasn't been occasion in history where consumption of alcohol has changed suddenly quite a lot either going down or going up very rapidly and what would have been those reason for those changes at the time? Sure okay so let's focus on the US market and the reason I say that is we have very good data in the US you know it's a developed market has got a lot of publicly sourced data it's got a lot of universities that have been focusing on this so that the data availability in the US is pretty good and we can go back century back to really prohibition and look at how alcohol consumption has changed and generally speaking we've seen an increase in alcohol consumption over that century there's been two major times in where it's fallen the first one I was after the Second World War and the sort of economic weakness that happened after that period and then the the second change was in the late 70s early 80s where the US introduced the 21 year old legal drinking age so that actually happened state by state in the late 70s and then in 1984 the US as a country decided that 21 was a minimum age for with which you can purchase alcohol but since then we've seen around three decades of general growth in pecapt consumption but you're absolutely right in saying there is this concern that the young people are drinking less and this is often put forward as a reason why we've seen this very recent decline in pecapt consumption when you said very recent is two years right it's it's after 2022 exactly that yeah exactly that so what we saw in the beginning of the pandemic and the pandemic was of course a major change the industry industry obviously supplying many of the pubs bars restaurants that were shut down for lockdown reasons in 2020 and in the years afterwards but what we saw then in the US and this was quite unique to the US it didn't happen in many countries with a profound increase in alcohol consumption very early on in lockdown we saw sort of March 2020 time the growth in alcohol was in this very basic entry level vodka's jeans to keelers and in large bottles and people not knowing if they would be able to go to the supermarket next week and say very much stocked up on alcohol for their homes in sort of March 2020 and then as we moved on throughout 2020 the premiumization took hold and people were buying extreme amounts of very high end products so things like single-marskotch whiskey, cognac, premium tequila, but overall alcohol consumption increased in 2020 and 2021 when lockdown started to end in late 21, 2022 then we started seeing the decline in alcohol purchases and that continued over the we're still happening today and alcohol growth is pretty flat you know very low growth today and so yeah you're absolutely right the changes have happened relatively recently and so when people are putting forward these so-called structural impacts on the market and so young people drinking less is very much one of those and then people talk about the GRP1 drugs which are relatively recent things like cannabis legalisation. So GPL1 drug is the ozempic family right? Exactly, ozempic, mojaro, these sort of weight loss drugs that are historically used for diabetes treatments and more recently are now used for weight loss but yeah people are putting forward these as structural reasons as to why the alcohol consumption is much lower so we've obviously looked into these and considered some considerable details to try and understand where there's some truth in that one art and in terms of the young people drinking less I think the evidence for this is it's not very strong but I have to nuance that somewhat because of course we are seeing a decline in underage consumption and that's a trend that's been seen for about five decades so as we have today- That's a trend that in I mean in the wine world we quite I mean I'm quite happy to see we should encourage you know the drop of underage consumption that's that's a good sign it's a sign that we are more responsible in the way that we are selling and encouraging you know the consumption of alcohol so it's a good thing. I certainly wouldn't disagree with you there you know from a personal perspective of course we want to see people consuming responsibly but of course my job is to simply predict what's happening rather than put an ethical ethical framework on it I'm trying to understand how trends might change in the future so yeah when we look back for around five decades and our data really start here in the mid-1970s we've seen a decline in 18 year old consumption in the US for that entire time period it accelerated when the US introduced a 21 year old legal drinking age but it's continued after then and the concern in the industry would be that if 18 year olds are not drinking or 19 year olds are not drinking then they also don't drink when they turn 21 and in their 20s and that is simply not backed up by the data if you look at the age group of between 21 and 30 you've seen pretty static levels of consumption since really the mid-90s and when I say consumption what we're looking at here is a prevalence so people are asking a survey have you consumed alcohol in the past 30 days or have you consumed alcohol in the past 12 months and those data points have been pretty static for the past three decades there has been some changes in sort of heavy consumption and so this is things like did you consume five drinks in a row in the past two weeks or did you consume 10 drinks in a row or did you consume alcohol every day for the past 30 days and that change happened around 2010 there was a steady increase in this sort of heavy consumption in the 90s into the naughties and then post 2010 we've seen a slight decline but these are pretty minor changes I would be I'd struggle to argue that they would be causing any major change. They're also positive but so if I understand correctly so one of the reasons that we actually panicking because Gen Zed is not drinking alcohol anymore it's because well Gen Zed is between 13 years old and 28 years old so there's only you know seven years of Gen Zed which is of legal drinking but the stats are actually covering from 18 to 28 really when it comes to Gen Z but the 18 to 21 Gen Z that are technically in most of the studies and in most of like the gallop stats and everything those people the 18 to 21 do not drink much but that's normal because they're underrated. It's exactly right, Pauline. But the 21 to 28 portion of Gen Z seems to follow the same trend as the generation before them. Exactly right and I think that's a really important nuance to point out because I think there's a lot of data that's thrown out there that uses these categories like 18 to 30 18 to 34 and you're quite right to quote the gallop study because that's the one that's often quoted to me and a gallop a very reputable polling organisation and people point look at this stats showing that say 18 to 30 year olds are drinking less which is true but only because the 18 to 20 year olds are drinking less and the 21 to 30 year olds are drinking about the same as what they used to drink so I think that's where the nuance lies here and a lot of confusion comes from this. And if the companies if the alcohol company companies are successful in limiting underage drinking and continuing their they are broadly doing so we might even see a larger drop of those 18 to 21 population again that's something that usually company wants to encourage. So but and what's good in what you're saying is that we can be I'm saying we as you know I'm not the industry but we can be good and active in limiting the underage drinking because it doesn't change the interest for alcohol when people are of legal age so it's a win-win. I think absolutely from an ethical perspective it makes complete sense to me. Okay and then if when it turns 21 that also reduces the episodes of very large excess drinking but it's also another win you know if we look at competitors for investment money would the cannabis legal company be one? It it had there was a period it last decade where cannabis investment was extremely interesting that's dialed down over that decade. and people don't see that in the same way as they used to. They have sort of an expectation that cannabis was gonna take the world by storm and we haven't really seen that happen. So, I guess within the sort of safer industries that one can invest in, and we've sort of put beverages as part of consumer staples in that less volatile space. Then if you're not investing in the drinks industry because let's say you're worried about regulation or you can actually, the tariffs and the like, of course, it has to revise a lot of our views very quickly as we get new news. Then you could look at say the food industry, you could look at the home and personal care industry, you could look at the tobacco industry for these sort of safe places to put investment money. But this is kind of investment trend changes and how people think about risk and how people think about geopolitics rather than alcohol itself. - I listen to you very quick things before we go back to our conversation. This podcast series is part of a larger reneglobal research project and we have a whole series of articles and publication in the pipeline. So don't forget to subscribe to our newsletter at reneg.global to be the first to read them. I'll put all the links in the show notes. And if you like what you've heard so far, please do subscribe to the reneg. podcast channel on any of the platforms that you are listening this episode on and give us a call rating, it really helps. The more subscribers we have, the more resources we can get to continue our exploration. But back to the episode now. - We are now going to focus on the big question that everyone in why now, I suppose in alcohol too, is asking at the moment but how is wine consumption likely to evolve in the future so in terms of volume and value price point? And who will be my consumers and where do I need to go in which market do I need to go to find them? And so that's a very big question. And in one of the latest reports that you published, you mentioned that to answer this question, the very first thing that one needs to do is to focus on both economics and demographics. Why is that? Why did you choose to put such an emphasis on economics and demographics factor on your latest report? - Sure, so we've been concerned with demographics for a number of years now. And of course you need people to drink, I suppose in a very simple form, the more people you have, the more potential consumers you have. And we identified the issues in demographics, particularly in the Chinese market a couple of years ago, sort of back in 2023 when we became much more concerned about potential growth in China. And that's largely because the young people in China have been declining now for over a decade. We see the 25 to 45 year old population as the most important for Chinese alcohol consumption. And so back in that time we were running some models, looking at how that population was going to evolve over the next decade and realized that it was going to shrink by nearly a quarter between now and 2035. And so that made us much more concerned about the potential for growth, of things like the cognac industry and even the scotch whiskey industry that has Chinese exposure. And therefore the companies exposed the China, we were much less positive on from an investment perspective. But in that work we recognize that the demographics were an important driver of that market. And so we thought, could we prove this statistically? And so pulled a relatively large database from the UN, UN does an excellent demographic, firstly database, but also forecast about demographics going to change. And so pulled as many data points out of that as we could think like age group of each size of each population age group, ratio of males and men and women and average ages, life expectancy, birth rates, these sorts of things. And overlaid on top of that, a lot of economic data that we could get on a consistent basis and say things like GDP per capita, genie coefficients, unemployment rates, these sorts of factors. And using the alcohol database that I mentioned earlier, so we've got an alcohol database for every country in the world, it's an important for alcohol consumption. Look to the amount of beer, wine, spirits, they consume and so can sort of calculate the capital consumption of these. But we've got a data science team here at Barfays to correlate these two pretty massive databases. And therefore, we can explain the changes in alcohol consumption using these factors that's trying to determine whether there was any statistical significance between either demographic or economic changes in alcohol consumption. And what we learn in doing that is that the demographic changes were largely explaining the volume changed in alcohol. And it, by demographics, it did, I proved it. It was very important to look at the young population, the 25 to 45, that was the most statistically significant population in terms of predicting alcohol consumption. But also the population that's involved in work. And again, it kind of seems relatively obvious, but if you have a working age population, which is a similar age, sort of 18 to 60 year old people, then that is a good connector of alcohol consumption. And then the opposite was also true. If you had a large, under 10 year old population, that was negative correlation with alcohol consumption, which I suppose you would expect. And as the population age, then that reduced the correlation with what the correlation showed that you had less alcohol consumption with that. And then the more premiumization of alcohol was more associated with those economic factors. And so that was particularly things like unemployment rates, GDP pickups, things like that. And so it was less a predictor of volume growth, but more a predictor of how expensive the alcohol that people were purchasing in those countries. So if you are selling expensive alcohol, you need a country that has a positive demographic, like a growing young people population, but also growing good economic conditions that makes a lot of sense. We do have pretty good data in the US. So I'll focus on that again. And we know a little bit about some of the other countries as well, and so we're a cannot of feeding those data. But we were sort of talking about with young people, what we tend to find in the US in particular is you pretty much get to maximum alcohol consumption when you first turn 21. And that level of consumption stays pretty linear until the age of about 40, 45. And then when you turn about of that age, then you start seeing a fairly gradual decline in consumption up to the age of 65. And this is where our data go a bit fuzzy because the study started in the mid 70s and say that all this people in that study are around that age now. But from our analysis, it also looks like when you turn about 75, you do again have another leg down in alcohol consumption. So-- - Okay. It's supported both by the data sets that we can see that look at alcohol consumption that the sort of 20 to 40-year-old is the important for volume consumption. But what's important, of course, is as you do turn 14, get older, you're typically your income levels continue to rise. And so people tend to earn the most in their lives at around the age of 50, 55. And therefore you get more premium spending towards the older age groups because they simply have higher income and are able to afford these more expensive things. So given that we were saying earlier that wine is one of the more premium alcohol forms, typically at least, then it makes sense to me that it would skew towards the slightly older age range than some of the more affordable forms of alcohol which are often bear an entry-level spirit since in many of these markets. Can we discuss the gender? How does the gender ratio in a population impact the alcohol consumption? Either in volume or in value? - So this was a fascinating result that we got and I didn't expect at a tall. One of the biggest predictors of premiumization in the market was actually the male-female ratio in any country. And so that's saying that if you have more men than women in any country, you have a more premium spend in that country. And so when we first saw that result, we thought, okay, maybe the data just being skewed by a few countries as there are a few that have quite a major difference in male-female population. - That's why I'm trying to say that. - They're basically China, India, Indonesia, these sorts of places. So we just excluded those datasets completely and then we actually got basically the same results. And so it does seem to be a true result that this ratio becomes an important one. And what's interesting about that also is it is the ratio in the became most relevant. It's not the number of women or. - Or the number of men or the number of people in general it was the ratio. And it was very difficult to explain that one. And I can any sort of speculate why that could be. And the first reason we thought of was, well, maybe it's just the type of alcohol that men drink versus the type of alcohol women drink and it's relatively well documented that some of the more premium spirits are drunk by men. Things like Konya, single mark, Scotch, whiskey have a very male skew to them and they are some of the most premium forms of spurs that you can purchase in the, I guess, more entry level, more affordable spurs, things like gin, tequila, skew a bit more female. So that might be a consequence of years of marketing? It could be marketing, it could be preference, I've looked into things like new demand collect more things than women and they're sort of the idea of collecting spirits. I can't find any conclusive evidence for any of that and so I'm reluctant to sort of give a firm reason. But the other one, the other reason that they came to us was again looking back to when we were looking at China in a lot of detail and we looked at the sort of Chinese real estate market as a very important driver of economic success in China. It's one of the reasons that China saw a very strong boom in the last few decades, sort of wealth expansion because of real estate and that's causing a lot of the problems today. But when we looked at the real estate space, there was this interesting argument that was given as one of the reasons that Chinese house prices were increasing so much, was as well the male female ratio. And this is the idea that if you have many more men in the dating market and fewer women, then dating is more difficult for the man. And it's in Chinese culture it's important to be to have a house when you get engaged or get married and so therefore Chinese men have been competing for fewer and fewer houses so the house price gets pushed up and this was given as an explanatory factor as to why the housing market was sort of bubbling in China. And so I wonder if there's a similarity taking place in the wider world in the alcohol market and that's the idea if you have more men in the dating pool and fewer women, then almost men have to try harder on those days. It's a stressful men with very big muscles. Yeah, it seems relatively simplistic but we sort of respectfully that could be one of the reasons but it's something I'll do a little bit more research when we sort of replicate this study in years to come and to see if that result continues to be there. And I certainly welcome it. If anyone has any views as to why this could be, please get in touch with our I'm certainly all here at Ian's, so high-portencies. And so because in terms of volume that was quite I think consistent through the different countries that you study is like men drink three to four times more than what women drink. And some countries are changing, some countries see a pickup in women consumption but typically for many different reasons, you know, body composition, culture, we can quote of you, men keep drinking more than women too. So in terms of predicting markets that that ratio is important and interesting. Exactly that. And we saw that World Health Organization data that sort of give you that male female split by country and it's a very consistent ratio. I mean, of course the quantum of alcohol changes but the ratio of what men drink to what women drink is fairly consistent throughout the world. And yeah, that's sort of three to four times we see pretty much everywhere. But it's also some of that, like you said, the countries that particularly in the developed world that are seeing more alcohol consumption, and as I said earlier there's not many of these, but it's someone like the US where you are seeing an increased alcohol consumption over the past a few decades. That growth is often coming from women. We're not seeing much of an increase in male consumption and the growth is really explained by the increase in female consumption. So it's an important market that the companies are increasingly focused on focusing on as well. Yeah, and one can assume also that if they follow some trajectory that we know, once they've got more experience into buying and drinking alcohol, that's also when female will premiumize that you can expect, you know, and buy more expensive drinks. Let's go back to economics because it's kind of easy. Is it as easy as the wealthier country, the more alcohol they buy? Like what's the relationship between the economic situation of a country and the volume and the type of alcohol that it consumes? So it is as easy as saying that, but the relationship isn't as strong as it's not the best predictor. I mean trying to predict any of these things is pretty difficult. We have statistically significant correlations, but the correlation is relatively low. It's not a it's the best predictor we've got, but if they're not themselves, that's strong. So yes, the countries that are wealthy are typically drink more, but what we try and look at is the change in wealth, the change in GDP per capita, and therefore try and predict, therefore how the alcohol market could change in that country. And there are exceptions to this, of course, because it's plenty of very wealthy countries that don't drink much alcohol. Take someone like Qatar, for example, when the highest GDP per capita countries in the world, yet very low per capita consumption of alcohol, and that's typically because of the national religion is sort of forbids or prevents a lot of alcohol consumption taking place within the country, but going back to the major countries that we typically look at, you know, you're America's China, India, Brazil, Mexico, Europe, these sorts of places. Then yes, as we see an increasing GDP or increasing wealth, then yes, we do expect to see an increasing alcohol consumption in those countries. And then, as I said earlier, the most important correlation here is the level of primimization that we see there. And so if we see an increasing wealth or GDP per capita, then we also see an increasing level of primimization, which leads to higher spirits, typically, or higher wine sales, but also what is important as well as the level of inequality that we see in these countries. Yeah, we're entering the Giniere ratio. Exactly. So if you look at the Giniere vision, which is a ratio of the highest income people, as a ratio of the lowest income people, and so you can see that you can quantify the level of inequality in a country. And what we typically find is the higher the inequality, the greater the primimization. Yeah, and that's particularly true for spirits, you were saying. Yeah, exactly. It's much more true for spirits than for there. Because beer and spirits had a different, if I remember correctly, beer and spirits had a different model. So when people had more money, they bought more expensive beers. But in spirits, that correlation wasn't automatic. Like it was, it's like if you want in a market where there's a lot of very expensive spirits sold, most of the time it's because the Giniere coefficient is in favor of the, there's a lot of very wealthy people in that country. And it kind of makes sense of you put somewhere to the places where you've got very high junior coefficients as parts of Africa, some parts of Latin America, where the wealth is concentrated in a few, a few people. The cost of living is relatively low. And to the amount of disposable income available to these people is much higher. And so they have money to spend on discretionary items like premium spirits and other things. And then the opposite is true in countries like Scandinavian countries, you're at Japan's, where Giniere coefficient is relatively low. Inequality is much lower. And therefore the cost of living is somewhat is relatively higher, less discretionary income to spend on these premium products and therefore they don't. So we can't, I mean, the question I wanted to ask you, but we can't really talk about, you know, economic factors impacting global article consumption without talking about the tariffs because we're bright in the middle of it. We have been for a month now. How do you see the obstacles that we see rising, not just from the US in terms of impacting free trade? How will that have an impact on global article consumption? I mean, have you already seen an impact in the months of April that has just finished in how companies are investing in alcohol companies and what they think it's going to do to our call consumption? Sure. And putting it actually right, this is the major topic in the industry at the moment because it's such an unknown. I'm almost nervous about saying anything. We're sitting here recording an early name. I'm sorry, we might have to. So I put a very heavy dose of salt with these answers. But yes, this is obviously a very important thing that's happening, as particularly in the spirit space. And this is going to be true in wine as well. You can't suddenly change the place of a place of production. If you're selling your product in the US and you're making cognac, you're making Scotch whiskey, Irish whiskey, or what have you, there's the reasons why you have to make it in those places. And so whatever tariffs the American government come up with will almost certainly impact the margins available to the companies to profit from selling these things, which could well result in price increases within the US. And so then we have the situation where the price of, say, Irish whiskey might go up somewhat, yet the price of American whiskey probably won't. And therefore you get a little bit of substitution factors between the different categories. And so we've been trying to establish which categories are going to have greater substitution factors, which ones are going to have lower substitution. And also where these tariffs might end up But might take so what I understand is if there's a manageable level of tariffs like 10% on your side of things and on the job that you're looking you're going to look at how companies like where companies do you have their production capacity and where are their brands located because we're not really seeing the global level of local consumption dropping even in those markets like the US that may have high quality. I think that's why tariffs on European alcohol. At least not in the short term because then tariffs also means usually less good economic situation and less growth and then we go back to different explanation. But tariffs on European alcohol, they will be a drop in global alcohol consumption. Basically that's what you were saying. I think that's fair. If we see price rises on simply European products, it's understandable you might see a bit of reduction in consumption. But if people are concerned primarily by price then they can simply substitute for American produced products. I'll drop it to look at where everything is made for all these companies and then what do they sell in the US and therefore what could the impact be on their profitability. But also recognizing that the beer industry is having very little impact from this. The majority of beer production in the US is in the US itself. There is some Mexican production and the still some speculations how the tariffs are going to be impacted Mexican production. But the majority of beer produced by companies like ABM is made in America. Based on your study and the demographics, the economic data is your barkly report underlines what you called strong media and challenge markets in some way. The Holy Grail is a country which is when you think about it, it's not that surprising but it's good to have it on paper. The Holy Grail is a market where demographics is growing because they have an important rate of young people but also growth. There are economic growths growing as well. In today's world there are not that many countries that do have two of those conditions. What are the most exciting countries like where do we need to go basically in terms of places and in terms of market development? Where do we need to put our money on? No, good question. We put the US at the top of this list. Typically speaking, it's one of the only developed market countries that's still seeing a growth in young people. On its own, it puts it ahead of a lot of other places. Typically speaking most economists are expecting the US to continue its level of economic growth over a few years, decades. This current period, notwithstanding, we have yet to see how the current administration's economic policies are going to play out. Generally speaking, people see the US somewhere with good economic growth. There's a couple of others in there, so Canada would be in a similar basket. A lot of Canadian growth in young people is from immigration. We do have to couch some of that growth in young people simply because the countries that people have been immigrating from are not from alcohol consuming parts of the world. If you came from an Islamic country, it's normal that those people don't really consume that much alcohol and so not as helpful to the alcohol industry for future consumption. We've also just highlighted Argentina as one to keep an eye on. Of course, Argentina has gone through a profound economic change with a heavy MLA becoming leader of that country. It does have a very strong demography. That puts it in the basket of areas that we are certainly keeping an eye on. It's relatively small and it's an important beer region, but it's still relatively small in the grand scheme of things. Of course, that's where geopolitics will play as well because if Europe do have an agreement with the Mercosur, that will probably help with the development of some of the big European brands there. The US, Argentina, I remember there were Ethiopia, that was a country that you mentioned in your report also in Nigeria because of course when we talk about demographics, Africa has to be here. The demographics are so interesting there. When we look at the 25-45 rural population, most countries are growing or declining by a few percent. The UK's forecast for decline by a single percent over the next decade. Even the worst in Europe, Germany declining by 11 percent over the next decade. The good countries, so some are like the US growing at 4, India growing at 7. Germany is declining by 11 percent. Germany is a tricky one. We should come back to Germany. Just answering your question on African countries. Ethiopia and Nigeria are growing by 33 and 34 percent. It's an extraordinary level of growth in the young there. We really have to highlight these countries as potentially very important regions for alcohol consumption growth and particularly in the beer industry. Very much worse focusing on if companies have aspirations of future growth in the next few decades, that would be an area of investment. Maybe we should talk about Europe or Germany as well if that's. I mean I know that Europe wasn't growing in terms of population. I wasn't expecting an 11 percent decrease. That's a big drop. You're not alone there. I think these data have surprised a lot of people. So Germany, young people falling by 11 percent over the next decade, Spain's falling by 8 percent. Even some of us are easily falling by 6 percent. We really highlight these parts of the world as quite challenged from a consumption perspective. If we say that the volume growth has got to come from the young and you're having fewer and fewer young people. So the companies are going to be fighting over a much smaller pool of potential consumers. So any company with that over? There were in the middle of the middle, you know, in the middle of the market. Yeah, so this all comes down to when did the birth rates start declining in these countries? And these sort of Germany, Spain, Italy birth rates fell earlier than places like France and the UK. So France and UK declining at one or two percent over the next decade. The UK certainly been supported by immigration and that's from. Yes, France, exactly. And typically those. the immigrants are not coming from alcohol-consuming cultures. And so perhaps those higher numbers or less negative numbers are somewhat helped by immigration, but from an alcohol perspective, it's obviously not as helpful if the people are not consuming alcohol. So Lawrence, maybe to finish three advice for companies that do sell premium wine out there. So what do they need to do in the next few years? Well, we didn't really talk much about China. And that's been a huge focus for us. Sort of mentioned earlier we did the study nearly three years ago now. We're looking at the demographic changes and I was working with our economist team, Basin Hong Kong, looking at how the economic factors will be impacted by these changing demographics. And we conclude that it's going to be a very difficult area to grow consumption of alcohol in the future. And our economists concluded a much slower economic growth rate in China as a result of a falling young population. Because of course the young are the ones who are meant to be innovating in an economy and the older the ones that need supporting the young are meant to be generating the taxation and the young that the older are going to be using the taxation. And so when we look at China over the past couple of decades when China was was enjoying very strong economic growth sort of GDP grows in the high single digit 8%, 10%. Maybe double digit a decade or so ago. That was at a time where you had six working age people for every retiree, which is a huge number in the global scheme of things. Let's put that in context. The U.S. today is around two and a half working age people for every retiree. But over the past decade China's fallen to around three. It's halved in the last decade. And we forecast it's nearly half again over the next decade. So you can see you're going to have far more older people that require support, that require say healthcare and the like. And far fewer young people in this was partially the result of the one child policy or the most demographers agree that that didn't really have a huge impact on the number of births or the birth rate. It had much more of an impact on the male female ratio we talked about earlier. But yeah China's birth rate fell materially between around 1970 and 1990, which means that the key demographic that we care about the 25 to 45 rural population is forecast to be so much smaller over the next decade. I think it's going to fall by around 22% over the next decade on our data. And so the Chinese potential for alcohol growth is going to be icing far lower than some of the companies expect. And we've had, for over the past decade, we've had companies suggest that Chinese growth is going to be in the double digits. or high single digit in 8, 9, 10, 12, the same growth in China. And remember China drinks a lot of cognac, or at least that's the most important international spirit in China. And cognac needs to age. And I was thinking when you were talking, it's like maybe for wine, at least for fine wine, it would be slightly a different story, because again, fine wine is skewed towards all the population, usually with higher revenue. But for sure everything that impacts the global market, I mean, if bigger companies don't invest as much in China that they should have, it means less roads to market, less on trade development as well. And this roads to market are usually very important for wine. You know, as we see in Africa, for example, we usually need bigger beer and spirits companies to open the way. It's not the wine companies opening nagel routes in those markets. I completely agree. And of course, the same economic concerns are going to be impacting the fine wine market. If you have, say, China has 70% of its household wealth was held in real estate. And we've just seen three years of decline in house prices within China. And there's plenty of reasons we could go into the why I'm trying to house prices are falling. But if people are less wealthy, then they feel less confident. The consumer confidence will decline. And therefore, they're slightly to spend on these premium, discretionary items. They simply have less money and have less fewer savings. And then what savings they have, they've got to spend on their parents who don't have any problem with the sisters to which support their parents or their grandparents. And so the availability of wealth or income to spend on these items just becomes lower and lower. So, of course, it doesn't mean that they won't be individual success in China. But it's just a category as a whole will be challenged. And the development of the global consumption will be challenged. Exactly. So, China, challenging, US, still exciting, still worth going, anything, you know, any other advice? Well, I think just be a bit cautious in Europe. We've got a number of countries in Europe that are probably going to be facing slightly weaker potential for growth in alcohol, just as a result of shrinking young populations. But then on the flip side, some of my Africa could provide a very interesting potential growth market. I think for the wine industry, it's going to take a while before we start seeing the levels of consumption of wine commensurate to some European countries or some other developed nations. But Africa, almost certainly, will be a very important area for growth over the next few decades. And even if we're thinking today that's likely to be there, at the very high end, the wealthiest people in these countries have sort of mentioned the genoceroffition becomes important here. There will be more and more markets that become interesting for things like premium-spirits consumption, premium wine consumption, within these sort of rapidly growing populations. So, which is a webinar a few years back that was called is fine wine ready for Africa. You know, because Africa is ready. But one of the data I remember is, you know, one of the panelists quoted is that there is a lot of very wealthy people in Africa as a continent. But the number that he was giving was there's as many ultra-net worth individuals in Africa, the whole continent than there is in Singapore. So, of course, when you're developing a market, it's much easier to go to Singapore, which is a tiny island that you can cycle across than actually trying to cast the net through a whole continent to find the people that would potentially be consumers for your product. So, there is the potential that, you know, it comes with a bit more investment in terms of logistics and everything. Lawrence, thank you very, very much for your time and for all your insights. It's been fascinating having that conversation with you. Well, thank you very much for having me, Paulie. I look forward to doing it again. You've been listening to New Consumers' new narratives. A podcast series produced by Yomni Global is a thing that's dedicated to the future of fine wine. 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